Brazil took a major step toward modernising its airports on Monday by selling multi-year concessions worth US$14 billion to operate three of the busiest hubs, and secured a huge premium from local and international companies.
As with other areas of Brazil's stretched physical infrastructure, the country's airports are groaning under the rapid expansion of the domestic market, reported Dow Jones Newswires.
Brisk economic growth and record low unemployment have created millions of entrants into Brazil's middle class. That in turn has spurred air traffic growth of double-digit rates, with demand jumping 16 percent in 2011 to about 180 million passengers.
The government is also scrambling to be ready to receive visitors to the 2014 World Cup and the 2016 Olympic Games. Privatisation is seen as a mechanism for accelerating the expansion plans, as red tape tends to tie the hands of the government-run airports operator, Infraero president Gustavo do Vale said.
Contracts to upgrade and operate airports in the cities of Sao Paulo, Campinas and Brasilia were sold for a total of $14 billion, more than four times the government's initial asking price, a reflection of strong demand for the opportunity to manage the infrastructure of one of the world's fastest growing airline markets.
"The result is a positive sign that this country is a place where investments are safe and profitable," said Wagner Bittencourt, Brazil's Civil Aviation Secretary, which oversaw the auction process.
Brazil opted last year to privatise several airports, and sold a small airport in Brazil's northeast. Monday's auction marks a major step forward.
The prize asset, the Guarulhos airport in Sao Paulo, was taken by Investimentos e Participacoes em Infraestrutura SA or Invepar, a holding company made up of construction companies and some of Brazil's largest pension funds – together with Airports Co South Africa. The partners bid $9.41 billion, considerably higher than the next bid of $7.5 billion, made by EcoRodovias Infraestrutura e Logistica and Germany's Fraport.
"We are very confident about the bid we made," said Gustavo Rocha, chief executive of Invepar. "The bid was made based on months of studies and modeling. We didn't make the bid just to scare off other bidders."
Guarulhos was considered to be the most attractive of the batch because it already has a huge flow of customers, and so guaranteed revenues. The airport in Brasilia is smaller, but still has a significant customer base; its concession was picked up by Brazil's Engevix construction firm and Argentina's Corporacion America, with a bid of $2.62 billion, seven times the minimum.
Transportation company Triunfo Participacoes won rights to operate the Viracopos airport in Campinas, which is slated to become Brazil's biggest airport, but which will require the mosinvestment, at $5.06 billion. Triunfo partnered with construction company UTC Participacoes and France's Egis Airport Operation to bid $2.21 billion, more than double the starting price of $871.69 million.
Despite bringing in private-sector operators, the government is still expected to pay a dominant role in the funding for the airports, via the national development bank, or BNDES, which has agreed to lend about 80 percent of capital needs – excluding the amount paid for the licence – at heavily subsidised interest rates.
"During the first phase we will make use of BNDES, as it will be enough to start construction work," Triunfo's Bottarelli said.
"We may use infrastructure bonds. We know what rates BNDES charges, let's see what the market asks for."
Infrastructure bonds are a new class of debt for which the government is in the process of creating new incentives including tax cuts.
Meanwhile, the success of Monday's auction is likely to encourage more concessions later this year. Secretary Bittencourt told reporters the government is planning concessions for airports in Rio de Janeiro and Belo Horizonte.
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